Transcript of Question & Answer Session The Outlook for the Australian Economy

I think we've got some microphones around, so if anyone would like to ask some questions, please take the opportunity.

If you wouldn't mind saying who you are before you ask the question. Over here.

Hi, my name is Teresa. That was a very good representation. I just wondered what your thoughts were on industry 4.0, and employment and in financial services moving forward.

I'm afraid I'm going to have to say I'm not 100 per cent sure what industry 4.0 is.

Well I guess it's the whole digital disruption.

Oh, okay. Let me talk more generally about the effect of technology beyond just the financial sector. There is a fair bit going on in the financial sector. I think the interesting thing there in the financial side of things, on the disruption side of things, is just how much it's going to disrupt the large incumbents, and how much it's going to be complimentary to them versus disruptive to them. I think that remains to be seen, both here and elsewhere in the world.

More generally I think the interesting thing to think about technology is, so you can talk about disruption, and normally when people think about disruption they think about that as resulting in job losses, and you can highlight the job losses, particularly in the financial services sector that have been announced recently. But if you go back over any number of years, we've always had these technological disruptions of varying forms, and jobs have been lost in particular sectors, but then other jobs have come along as a result of those disruptions.

I think one interesting thing to think about, which everyone always brings out, if you go back to the car replacing the horse and cart, and most people think oh well, so the blacksmiths were put out of business. And then we got all those car factories, but there were a bunch of other stuff which comes along with cars. One of them is traffic lights, another one is tar on the roads, so there are a whole bunch of other associated industries and employment which come along with it, which you don't necessarily think about, rather than just the direct effect of the technological disruption.

I suppose we, as the human race, have been worried about technological disruption for around about the last thousand years or so, but we're still sitting here in an economy where a bit under 95 per cent of the people who want a job have actually got one. Something has come along to provide that job, provide different openings for employment for people. One day maybe that won't be the case, but to date, so far, for the last few hundred years, it has generally turned out to be the case.

In the financial services sector, I think the interesting thing there is how much or what impact that has, particularly on you as CFOs, in terms of opportunity that opens up for you. One thing I am going to talk about is a bit of technology that we've just put out there, along with parts of the financial services industry, which I think does provide a lot of opportunities for you as CFOs. Hopefully you're aware of the New Payments Platform, which went live in February this year. That allows for real time, fast settlement of payments, 24/7, within a few seconds.

What it also allows for, and I think this is particularly interesting for you to think of as CFOs, in the past, when you sent a payment, you were very restricted in the information that you could send along there. The restriction on the size of the information that you could send with your payment, dates back to the day of punch cards if you can remember those. That constrained the length of the information you could send along with the payment. Today, on the New Payments Platform, you can pretty much send whatever you want alongside that payments mechanism. You can send a contract, you can send other information related to the purchase that has just taken place, alongside that. I think that provides plenty of opportunity. So yes, that's a disruption in financial services, but I think it's a disruption which creates far more opportunities than it does cost.

As I said, the opportunities there for the businesses I think, on the New Payments Platform, are large, but not just in the payment side of things, but actually in the information transfer that can go alongside that.

Any more questions?

I just wanted to talk about macroeconomics. We get a lot of discussion about the Australian debt, however, we don't seem to get a lot of commentary at these sort of presentations, on the US debt and where the bank sees that, dare I say, unravelling.

Just to give you some context, as I mention some of the numbers, here, we're looking at net debt, I think, of around somewhere in the ballpark of 20 per cent. Maybe peaking somewhere a little above that and coming down below that. US at the moment, its government debt looks like it's going to be north of 100 per cent of GDP by around about this time next year, which if it doesn't do anything else for you, puts the size of our debt in some context, relative to a bunch of other countries around the world.

I think that, as I said earlier, I think it's interesting, I suppose the best word to use, that the US in an economy which is close to full employment, is injecting a fairly large amount of fiscal stimulus into the economy. It's not something you normally do at this state of the cycle. When it's been done in the past, it hasn't often ended up all that well.

But one thing which is always interesting about debt levels is they're basically sustainable until they're not. The reason why I say that is if you look at Japan, which has a debt to GDP ratio well north of 200 per cent, US is only half that. Now does that mean that the US is necessarily going to be sustainable? I don't know, but a number of people have been saying for a long time that the Japanese debt position is not sustainable. But here we are today, more than two decades on from when people were first saying that it's not sustainable, and it's been sustained so far.

Bottom line of all of that is, that is one of the aspects that I think we have the least amount of insight on in the economics profession, is what level of debt is actually sustainable, particularly on the public debt side of things. We're a bit better at it on the business side of things or the household side of things, but not on the public side of things. There are any number of different levels of debt which have been sustained, quite high levels which have been sustained for quite a long time, but then if I look at some of the Latin American countries in particular, which have got in trouble in the past, they've got in trouble in a hell of a lot lower levels of debt than say the US has currently or is projected to have in the future.

I'm afraid that's not a particularly satisfactory answer to your question, beyond basically saying that's one of the areas the economic profession is not particularly good at.

Okay, we might need to wrap up there. Guy, thank you so much for your time. Everybody please thank Guy for his speech. Thank you, Guy, that was so good.